The recorded total fund balance for the general, sewer, and water funds at the end of the last three fiscal years were either overstated or understated due to various accounting errors. As a result, the Clerk-Treasurer and the Board were not aware of the general, sewer, or water funds' actual operating results and overall financial condition. In addition, the Board did not adopt realistic budgets and did not properly monitor financial operations, which contributed to the Village being in fiscal stress at the end of the 2011-12 fiscal year. Specifically, the general, sewer, and water funds had a combined total deficit fund balance of $4,623 and a combined cash balance of only $6,451 at the end of the 2011-12 fiscal year. The operating funds only had a combined cash balance of $6,451 because the community development fund made an interfund advance of $20,000 to the general fund during the 2011-12 fiscal year. The sewer fund remained in fiscal stress at the end of the 2012-13 fiscal year because the sewer rates did not generate sufficient revenues to cover the costs incurred, resulting in the sewer fund having a total fund balance deficit of $35,029. The financial condition of the general fund and water fund improved and both funds had a healthy fund balance at the end of the 2012-13 fiscal year.

The recreation director did not remit all cash collected at the concession stand to the Supervisor, totaling $12,229 for the years 2010 through 2012. Additionally, we found that disbursements were made directly out of the concession stand bank account and were not reviewed and approved by the Board, or recorded in the financial system. In addition, Town officials have not implemented policies and procedures over the IT system, including a computer-use policy and adequate controls over computer inventory. Audit logs are not reviewed for inappropriate activity and the Board has not adopted a comprehensive disaster recovery plan.

Although the Board and District management believed they were effectively managing the District's financial condition, the adopted budgets continually included over-estimated appropriations. For fiscal years 2007-08 through 2010-11, these budgeting practices generated $2.76 million in operating surpluses, which caused the accumulated fund balance to exceed the statutory maximum of 4 percent of the ensuing year's budget for those same fiscal years. To reduce the unexpended surplus fund balance and bring it closer to the 4 percent limit, District officials made unplanned transfers to the District's reserves. We found those reserves to be over-funded by approximately $699,000 at June 30, 2013. The Board was more conservative in its budgeting practices for fiscal year 2011-12 and 2012-13 and reduced its unexpended surplus funds to a more reasonable level. However, we found that the Board did not include in its 2013-14 budget more than $790,000 in insurance revenues it expects to receive during this fiscal year ending 2013-14. This, combined with the over-funded reserves, will bring total available fund balance to more than $1.9 million in fiscal year ending 2013-14.

The Board adopted budgets that included the use of surplus fund balance to finance operations in an effort to avoid raising unnecessary real property taxes. However, although fund balance was included in the budgets, the District has not actually used fund balance to finance operations since 2008. In fact the District has had operating surpluses for the past several years. Instead of spending down the District's accumulated surplus by an average of $248,000 annually, as the Board had planned, the District's operations generated additional surpluses totaling nearly $1.8 million over the last five completed fiscal years. These operational surpluses occurred because the Board's adopted budgets consistently included overestimated expenditures for each of the last five years and underestimated revenues for three of those years. As a result of the Board's budgeting practices, for the fiscal years ending 2008 through 2012, total fund balance has increased 72 percent to $3.6 million with reserves at almost $3 million or 82 percent of the fund balance at June 30, 2012.

Internal controls over payroll ensured that the District employees were paid only approved salaries and wages. However, although the Board adopted a leave accrual policy, District officials did not enforce the policy's maximum accumulated leave limits. Four of the six employees' leave balances we reviewed exceeded the policy's maximum allowed limits. As a result, there is an increased risk that District employees could receive, use, or get paid for more leave than the amounts allowed in the District's policy.

The Town is currently in fiscal stress, due to the Board's failure to adopt realistic budgets over the past four years. The Town's combined year-end fund balance for its five major operating funds was a $2.2 million deficit at the end of 2012. This resulted from overestimated revenues in 2009 and 2010 and underestimated expenses in 2010 and 2011. The town-wide general fund balance deficit increased from $384,000 in 2009 to a $1.4 million deficit at the end of 2011. To cover operating expenses, Town officials loaned moneys between multiple funds, resulting in $10.3 million of outstanding interfund loans at the end of 2012. Further, the sewer fund's fund balance dropped from a surplus of $765,000 in 2009 to a $1.3 million deficit in 2012, primarily because sewer revenues were not sufficient to cover operating costs. In addition, the town-outside-village general fund had a $2.4 million fund balance deficit at the end of 2012. We also found that the Town did not use nearly $782,000 in donated funds as stipulated by the donors, but instead applied these funds to the Town's general and sewer operations. Town officials did not maintain proper accounting records and did not segregate the donated funds for the exclusive purposes intended.

Village officials have not adopted policies or procedures to govern budgeting practices or the level of unexpended surplus funds to maintain. Although the Board has been provided with sufficient information to develop accurate budgets, the Board has consistently adopted budgets with unrealistic estimates of revenues, expenditures and the amount of fund balance to be used to fund operations. The Board consistently overestimated expenditures and/or underestimated revenues, which caused significant positive budget variances. As a result, although the Board appropriated $3.73 million in fund balance for the general and sewer funds, over $2.9 million of this amount was not used. Consequently, the Village has accumulated excessive unexpended surplus funds amounting to $833,139 and $522,373 in the general and sewer funds, (or 43 and 52 percent of expenditures), respectively. Furthermore, the Board has not developed a comprehensive long-term financial plan, which would be a useful tool to strategically utilize to reduce the excessive unexpended surplus funds in a manner that benefits the taxpayers.

We tested 16 purchases totaling $408,028 made in the 2011-12 and 2012-13 fiscal years. These purchases required bids or quotes, or were purchased from State and County contracts. We found that purchases were not formally bid or awarded by the Board, quotes were not always obtained, and Village officials did not determine if they received the correct State or County contract pricing. The Board's failure to ensure that Village officials obtained bids and quotes in accordance with the Village's procurement policy, and verify that they were receiving the correct State and County contract pricing, resulted in the Village incurring higher costs than necessary for goods and services purchased.

The Board did not develop policies and guidelines for budget preparation and monitoring. As a result, it repeatedly adopted budgets with inaccurate revenue and expenditure estimates, which led to the accumulation of significant surplus funds. Additionally, the Board did not have a long-term plan for identifying fiscal trends, which would have facilitated the budgeting process. We also found that the Board did not adopt an investment policy or develop guidelines over other key financial areas; did not properly authorize interfund advances; and did not provide for timely and/or proper annual audits of the Town Clerk, Town Justice, and Supervisor's office. In addition, the Town's procurement policy does not require the solicitation of written proposals or quotes or other methods for the acquisition of professional services. In 2011 and 2012 the Town paid $314,781 to seven professional service providers without soliciting competition. Town officials were unable to provide the contracts for the payments in 2011 and 2012 for three of the providers.

Our audit revealed that the Board's involvement and scrutiny of financial activities and operations was inadequate, and that the Board and Supervisor were unaware of the inadequate condition of the Town's accounting records. The Supervisor did not adequately oversee and monitor the work of the Budget Officer who served as the Town's bookkeeper and maintained the Town's accounting records. Due to the poor condition of the Town's financial records and reports, the Board was unable to determine the Town's true financial condition or effectively monitor the Town's financial operations. The Board also was unaware that the Town was not in compliance with payroll tax filing or payment requirements for Federal and State liabilities. In addition, the Board did not ensure that the Supervisor had prepared the 2010 and 2011 annual financial reports, and the Supervisor never filed these reports with the Town Clerk or OSC. The Board also failed to perform an adequate audit of the Supervisor's and Town Clerk's books and records.

Internal controls over reserve funds are not appropriately designed or operating effectively. District policy provides that an annual report of District reserves must be prepared and submitted to the Board for review that includes a summary statement of projected use and need of the reserve funds. However, the annual report prepared by the Business Administrator does not include a summary statement. As a result, the Board's ability to monitor the projected use and need of reserve funds could be limited. Currently the District has more than $1 million in a debt service reserve that District officials could not associate with any outstanding debt, and more than $1.1 million in general fund reserves that exceeded reasonable needs of the District.

The Supervisor did not maintain accurate and complete accounting records to properly document assets, liabilities, fund balances, results of operations, or prepare accurate reports that would allow the Board to adequately monitor the Town's financial operations. Although the Supervisor prepared and remitted monthly reports to the Board and AUD's to OSC, these reports were not accurate because they were prepared using the inaccurate and incomplete accounting records. As a result, the Board did not have the information necessary to make informed financial decisions about Town operations.

We found weaknesses in the Court's internal controls and a lack of oversight of the Court's operations by the Justices and the Board. The clerks performed all of the key aspects of the Court's accounting function with limited oversight. Deposits were not always made, and monthly reports were not always submitted in a timely manner. Because of these weaknesses, the Board and the Justices have limited assurance that all moneys collected are accounted for, and there is an increased risk that Court funds could be misappropriated without detection or correction.

While the District does have adequate financial policies, it does not have certain financial procedures in place. The Board has not ensured that procedures concerning certain financial recording and reporting were developed. The Treasurer submits a budget-to-actual financial report to the Board only at the end of the fiscal year and has not filed the required annual financial report with the Office of State Comptroller since the 2008 fiscal year. Although the Treasurer identifies checks that have cleared the bank, he does not perform proper bank reconciliations. The Board authorizes each claim for payment and indicates its approval by affixing Board member signatures to the claims, but the Board minutes do not indicate the approval to pay these claims. In addition, the Board contracts with an independent auditor to perform an annual audit of the Treasurer's records; however, the last completed audit was performed in 2010 for the 2008 fiscal year.

The Board did not adopt a procurement policy as required. In August 2011 the Board adopted a resolution stating that although it is understood that the Town is required to have written policies, the resolution directed Town officials to consult the Office of the State Comptroller's publications for guidance. However, this resolution did not satisfy the requirement to adopt a written procurement policy, where the Board would specify the number of written or verbal quotes or bids to be obtained for various dollar thresholds, among other things. The Board also annually adopted resolutions requiring that it approve all purchases costing more than $1,500; however, these resolutions made no mention of quotes or bids to be obtained prior to such approval. The Highway Superintendent indicated that he obtained quotes for certain purchases, but did not retain them or attach them to the claim for review by the Board prior to payment.

The Board frequently over-estimated budgeted expenditures for the 2009 through 2012 fiscal years, and also appropriated $1 million in fund balance each year which was not fully needed to finance District operations. As a result, only a fraction of the appropriated fund balance was used to fund operations in three of the four years reviewed. None of the appropriated fund balance was used in the other year.

The Board did not establish procedures to help ensure that fuel was dispensed only into Town vehicles and equipment by authorized employees. Furthermore, there were no procedures in place to regularly monitor fuel transactions for reasonableness and ensure that only authorized employees were provided with a user ID. As a result, the Town paid $4,991 for fuel that was obtained by a former employee and used for other than Town purposes.

The financial condition of the Town's highway town-wide fund has declined in recent years from a balance of $88,293 at the beginning of 2008 to a deficit balance of $12,600 at the end of 2012. This decline in fund balance was caused by the Board not adopting realistic budgets and effectively monitoring budgets throughout the year. Additionally, the Board has not established an effective claims auditing process to ensure all claims reviewed and approved by the Board contain adequate support to substantiate they are proper Town expenses. One $1,500 claim was for a piece of highway equipment purchased from the Highway Superintendent's (Superintendent) personal trucking business. We determined that the Superintendent had a prohibited interest in the purchase of this equipment. Further, the Board did not audit the books and records of the Supervisor, Town Clerk, tax collector, and Town Justice as required. Finally, the Superintendent does not maintain inventory records that collectively show the amount of beginning inventory, fuel purchased, fuel consumed, and the balance of fuel remaining. Our analysis of a sample of the Town's gasoline and diesel fuel purchases and recorded usage determined that the Town is unable to account for approximately 2,510 gallons of fuel valued at approximately $8,440.

The Board did not develop reasonable budget estimates for the general town-wide fund and did not properly monitor and control actual activity against those estimates, allowing appropriations to be over-expended. In addition, the Board aggregately over-estimated revenues for mortgage tax by $154,157 and the rental of real property by $77,580 in the three most recent fiscal years (2010-2012). Because of the revenue shortfalls and over-expended appropriations, the general town-wide fund experienced operating deficits in the 2010, 2011, and 2012 fiscal years. Consequently, the general town-wide unrestricted fund balance declined from $450,949 at January 1, 2010, to a deficit of $107,587 at December 31, 2012. Finally, the Board and Town officials have not developed a comprehensive multiyear financial plan to adequately address the Town's operational and capital needs.

The Board disbursed $102,275 from the water system improvement reserve to pay for work associated with the River Street retaining wall project. However, because this reserve was set up as a capital reserve for the improvement of the water system, expending moneys from this reserve for other than its intended purpose, such as for the repair of the retaining wall, was an inappropriate use of the reserve. Although we were informed that this amount is to be repaid upon the receipt of State aid, there is no legal authority to temporarily borrow moneys from a capital reserve to be repaid upon the receipt of State aid. In addition, the Board did not effectively audit all claims under its jurisdiction because it only reviewed the voucher edit lists and did not review each related claim. The Board also did not audit, or cause to be audited, the annual financial report or supporting records of the Clerk-Treasurer. Finally, the Board does not monitor the remote access of software vendors or the Village's information technology consultant who has the ability to modify or destroy financial application data. Further, the Board has not developed a comprehensive disaster recovery plan, back-up copies of data are not stored in a secure off-site location, and the Village does not periodically verify that the system can be restored from the back-up copies.